Blockchain is technology that uses a distributed ledger and
complex cryptography to regulate bitcoin transactions. What that
means in practice is if people want to trade or transact with
each other online they can do it directly, rather than go through
a middleman like a clearing house.

"The market for private blockchain 24 months ago was zero," says
Jeremy Millar, a partner at boutique technology bank Magister
Advisors. "Now we’re at a stage in the market where it has
already gone into specialisation. This is a market that’s poised
to scale incredibly rapidly."

I got on the phone to him this week to hear how he sees the space
evolving and one big take away is just how fast the blockchain
space is growing.

"This is the fastest growing market that I have seen in
enterprise technology since the internet," says Millar. "Adoption
of these projects in the banks is going to be much faster than
people think."

Everyone gets a win. It’s not just the uber-geek that gets the
benefit.

Millar's report says almost $1 billion (£670 million) has been
invested in bitcoin and blockchain-related technology over the
past three years. Well-known financial firms like Goldman Sachs,
Citi, and Nasdaq are all investing in the technology.

So why are banks moving so fast on blockchain? A big reason,
Millar says, is because the benefits of the technology are so
wide ranging.

"Everyone gets a win. It’s not just the uber-geek that gets the
benefit. The CIO gets to replace very expensive, outdated
mainframe infrastructure with something better.

"The business owner gets to release capital — this is very
important. With the new regulations, post-2008 and Basel III, the
collateral and capital that’s required against any trade has
increased. Reducing settlement windows allows the banks to do
more trades or release more capital."

Banks legally have to put cash aside to cover a trade until it's
completed. That's to guard against the risk of a settlement house
— the middle man — rejecting the trade, going bust, or any other
potential risk.

But by cutting out the middle man the blockchain makes the
settlement period — the time it takes to complete a trade — much
shorter. That means you can get more bang for your buck from the
money set aside to cover the trade, as the efficiency gains
theoretically mean you can get more trades done in the same time
period.

Millar adds: "The compliance team gets a win too because if
everything is cryptographically signed on a blockchain, two
things happen. One, you will spot misbehavior in real-time and
two, after the fact no one can tamper with the evidence."

Millar expects the blockchain markets rapid development to
continue for the foreseeable future thanks to the sheer level of
money being pumped into the sector. He also expects more
businesses to evolve around the technology, such as blockchain
analytics.

"This is the banks internet moment," Millar says. "This is their
moment in the sun. All of a sudden being a CTO (chief technology
officer) or director of information at a bank is sexy."